Thursday, September 10, 2015

August JOLTS news not so great

The August JOLTS report adds further concern about the strength of the economy. I think the Openings measure is an outlier. I think it might be signaling both cyclical strength and secular weakness. The increase in Openings without similar movements in the other measures suggests a rightward move in the Beveridge Curve, which coincided in the 1970s and early 1980s with possible frictions in the labor market and rising secular unemployment levels.

While Layoffs remain very low, Hires and Quits have leveled off. This could be an early sign of a cyclical top. There is no reason why we can't coast along a high growth trajectory for many years, like we did in the late 1990s, but this would require a willingness to allow expansion. In the current regulatory and technological context, that probably means rising wages, rising inequality, rising home prices, rising building, and rising debt. A plurality of the country appears to be generally against the realistic achievement of growth that includes these properties, so I am just hoping we can have as much growth as we can get until that plurality pushes us into an unnecessary cyclical contraction. Some forbearance from the Fed would be a nice step in the direction of allowing some reasonable growth.

Quits and hires are starting to look like the late 2005-2006 period, where the yield curve and JOLTS data both flattened. These were early signs of a downturn. I don't think a downturn is inevitable. If the Fed raises rates and the yield curve flattens as a result, the danger of a downturn is high. If we allow it, we could see expansion for years with relatively flat behavior among the JOLTS indicators. But both hires and quits have been level for nearly a year, now. This is beginning to be a pretty strong indicator of a maturing recovery phase.